Automatic Data Processing Inc.
) reported third quarter 2013 earnings from continuing operations
of 99 cents per share, beating the Zacks Consensus Estimate by a
penny. Reported earnings per share increased 8.8% from the
Revenues increased 7% year over year to $3.11 billion and came
in line with the Zacks Consensus Estimate. Organic growth was 6%
in the quarter. The year-over-year revenue growth was driven by
strong performance of the Employer Services, PEO Services and
Dealer Services segments.
Employer Services revenues increased 7% year over year (6%
organically) to $2.21 billion. The number of employees on
clients' payrolls in the United States grew 2.7% in the quarter
on a same-store-sales basis.
PEO Services revenue increased 10% year over year to $565.5
million in the reported quarter. Dealer Services revenue
increased 8% on a year over year basis to $460.5 million.
Interest on funds held for clients declined 16% year over year
to $112.0 million. The decline was primarily due to a 50 basis
points (bps) drop in the average interest yield to 1.9%, which
was partially offset by a 7% increase in average client funds
balances to $23.2 billion.
Total expenses in the reported quarter increased 7.2% year
over year to $2.40 billion, attributable to higher operating
expenses (up 7.7% year over year), selling, general &
administrative expense (up 5.6% year over year) and systems
development & programming costs (up 14.3% year over
The company reported pre-tax earnings from continuing
operations of $724.8 million, up 6% from the year-ago quarter.
Net earnings from continuing operations increased 7% from the
year-ago quarter to $482.7 million.
The company exited the quarter with cash and cash equivalents
(including short-term marketable securities) of $1.68 billion
compared with $1.43 billion in the previous quarter. Long-term
debt was $15.3 million.
For fiscal 2013, ADP revised its revenue growth outlook from
5.0%-7.0% to 6%-7% on a year-over-year basis. Earnings growth
estimates were also revised from a range of 5.0%-7.0% to
Employer Services revenues are expected to grow approximately
7% with a pre-tax margin expansion of approximately 50 bps. PEO
Services revenue is forecast to improve 12.0%. Pre-tax margin is
expected to grow slightly on a year-over-year basis. The company
expects Dealer Services revenue to increase in the 8.0%-9.0%
range with a pre-tax margin expansion in excess of 100 bps.
The company expects interest on funds held for clients to
decline 15% year over year to approximately $420 million.
The company reported better-than-expected results on the back
of improved execution and higher client retention. However,
volatile macro economic environment and increasing competition
) are the near-term headwinds.
Currently, ADP has a Zacks Rank #2 (Buy).
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